Tesco and Booker announce food business merger

Aidan Fortune
· 27 January, 2017

Retailer Tesco is to acquire wholesaler Booker in a deal worth £3.7bn.

In a bid to create the UK’s “leading food business”, the two companies are merging so that it can “bring benefits for consumers, independent retailers, caterers, small businesses, suppliers, colleagues and shareholders”.

Dave Lewis (pictured, right), chief executive officer of Tesco, said: “Tesco has made significant progress in turning around our UK retail business. This Merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”

Charles Wilson (pictured, left), chief executive officer of Booker, said: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”

As part of the merger, Booker shareholders will receive 0.86 Tesco shares and 42.6p in cash per Booker share.

On completion of the merger, Wilson and Booker chairman Stewart Gilliland will join the combined group board. Wilson will also join the combined group executive committee.

The deal is subject to approval by the Competition and Markets Authority.

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Richard Lim, chief executive of Retail Economics, said the merger “will be a game changer in the food industry”.

“Its laser-like focus on the core UK food business is cutting deeper down the supply chain. The acquisition will strengthen Tesco’s wholesale and supply chain expertise while its digital capabilities will improve efficiency and provide significant cost saving synergies.

“As shopper behaviour continues to evolve rapidly, the new group will be well placed to capitalise on home shopping and the increasingly important area of eating out which has been the growth driver of the experience economy.”

Neil Shah, director of research at Edison Group, said: “With Booker onside, Tesco will have smart first mover advantage in tying up the food supply chain in the brave new world of online shopping, with Amazon the main disrupter and a pricing race to the bottom within the core grocery stores market catalysed by Lidl and Aldi, all of which makes shopper loyalty increasingly fickle.

“Tesco ceo Dave Lewis is consciously talking how the deal would not change its retail store footprint ahead of competition regulator scrutiny but that is almost a double bluff as he will be careful to avoid talking food supply chain where control of the market including competitor retailers is what will make rivals concerned.”